While Snowy Hy­dro has de­clared its readi­ness to de­velop the mas­sive Snowy 2.0 ex­pan­sion, the fed­eral gov­ern­ment has yet to de­cide on its eco­nomic fea­si­bil­ity. By So­phie Boot.

The Saturday Paper - - Front Page - SO­PHIE BOOT is a pol­icy reporter for Aus­tralian En­ergy Daily.

On Thurs­day morn­ing, the Mor­ri­son gov­ern­ment launched its en­ergy gen­er­a­tion un­der­writ­ing pro­gram, ask­ing for reg­is­tra­tions of in­ter­est in a scheme it says will lower power prices and in­crease re­li­a­bil­ity. Crit­ics fear it may lead to tax­payer money backing the con­struc­tion of new coal-fired power gen­er­a­tion. As it stands, fund­ing for the grants and loans scheme is un­capped.

The an­nounce­ment came hours af­ter the board of Snowy Hy­dro voted to ap­prove Mal­colm Turn­bull’s pet project, Snowy 2.0. The de­ci­sion is now over to Snowy Hy­dro’s sole share­holder – the fed­eral gov­ern­ment. There is no dead­line for that call to be made and En­ergy Min­is­ter An­gus Taylor was cau­tious in his re­sponse, say­ing the gov­ern­ment would “take what­ever time is re­quired to do the nec­es­sary due dili­gence”.

De­pend­ing on who you ask, Snowy 2.0 is ei­ther vi­tal to shore up Aus­tralia’s en­ergy se­cu­rity as the shift to re­new­ables gains pace, or it’s a mys­te­ri­ous white ele­phant that’s wors­en­ing the dearth of in­vest­ment it seeks to solve.

Some of the split is ide­o­log­i­cal – how big should the gov­ern­ment’s role in en­ergy be? How­ever, much of the pub­lic de­bate lies in the un­known, as the full de­tails of the busi­ness case have been with­held by Snowy Hy­dro be­cause of com­mer­cial con­cerns.

Built be­tween 1949 and 1974 by more than 100,000 work­ers, Snowy

Hy­dro has a solid pedi­gree. An­gus

Taylor’s grand­fa­ther was the scheme’s chief en­gi­neer. It con­sists of nine power sta­tions, 16 ma­jor dams and 33 hy­dro-elec­tric tur­bines, and cur­rently pro­duces about one-third of all re­new­able en­ergy avail­able to Aus­tralia’s east­ern main­land grid.

Snowy 2.0 would ex­pand the scheme’s ex­ist­ing pumped hy­dro, in­creas­ing its gen­er­at­ing ca­pac­ity by half. Stor­age will also be added, which is what 2.0’s pro­po­nents ar­gue makes the project so im­por­tant as coal fac­to­ries be­come less vi­able. Pumped hy­dro stor­age works by pump­ing wa­ter up­hill in off-peak times and wait­ing un­til there’s high de­mand to re­lease the stored wa­ter through tur­bines, gen­er­at­ing elec­tric­ity. At full ca­pac­ity, Snowy Hy­dro says it would pro­vide enough large-scale en­ergy stor­age to power three mil­lion homes for a week.

All of this comes at a cost, of course. At a min­i­mum, Snowy Hy­dro is look­ing at a spend­ing of $3.8 bil­lion to $4.5 bil­lion, ac­cord­ing to its own fea­si­bil­ity study. How­ever, this ex­cludes the cost of land and de­vel­op­ment, for­eign ex­change, fund­ing or fi­nanc­ing, project man­age­ment and GST. And beyond that, as the fea­si­bil­ity study notes, there “are risks, op­por­tu­ni­ties and con­tin­gency amounts that sig­nif­i­cantly af­fect this range”.

The cost of SnowyLink – the up­grades to shared trans­mis­sion lines nec­es­sary for Snowy 2.0’s power to be sent to Vic­to­ria and New South Wales – is es­ti­mated at $2 bil­lion. Those up­grades aren’t in­cluded in the project cost­ing ei­ther, be­cause the NSW trans­mis­sion monopoly Tran­sGrid – not Snowy – is re­spon­si­ble for the shared net­work.

An­drew Blak­ers, pro­fes­sor of engi­neer­ing at the Aus­tralian Na­tional Univer­sity, says $4 bil­lion for the project is “a very ac­cept­able price”.

“That’s roughly in the mid­dle of the price band that would be ac­cept­able for pumped hy­dro of this scale – $2000 per kilo­watt with a week of wa­ter, that’s a pretty nice price. Of course, I don’t know whether that’s what the fi­nal doc­u­ments will say. Six bil­lion dol­lars, I think it would prob­a­bly still be okay. If it was $8 bil­lion, you’d start to think, could we do some­thing else?”

That un­cer­tainty is what drives fear among scep­tics of the project. Bruce Moun­tain, di­rec­tor of the Vic­to­ria En­ergy Pol­icy Cen­tre, says in his anal­y­sis the project will cost at least $8 bil­lion and the mar­ket value of the project won’t come close to the amount spent build­ing it.

“I’m afraid it’s NBN 2.0 – it has been sub­ject to no proper scru­tiny, no pub­lic ac­count­abil­ity, no proper as­sess­ment.

“It’s not money the gov­ern­ment is spend­ing, it’s money the gov­ern­ment is tak­ing out of tax­payer pock­ets. On such a ma­jor in­vest­ment, not least the size of the ex­pen­di­ture but on im­pli­ca­tions for the rest of the in­dus­try, good pub­lic process ought to hold this de­ci­sion up for scru­tiny.”

Whether any of this in­for­ma­tion will ever be made pub­lic re­mains un­clear. Snowy Hy­dro con­sid­ers it com­mer­cially sen­si­tive and says that – as it op­er­ates in a com­pet­i­tive mar­ket – it will pro­tect its in­tel­lec­tual prop­erty, though it seeks to re­lease as much in­for­ma­tion as pos­si­ble to keep in­ter­ested par­ties in­formed. Within its fi­nal in­vest­ment de­ci­sion an­nounce­ment, Snowy Hy­dro said it would re­lease fur­ther project in­for­ma­tion if and when it gets fed­eral ap­proval to go ahead.

Ac­cord­ing to An­drews Blak­ers, it is likely Aus­tralia will reach 50 per cent re­new­ables for its en­ergy pro­duc­tion by 2024. In or­der to sup­port 100 per cent re­new­able en­ergy, he says, the whole sys­tem will need 15 to 20 gi­gawatts of stor­age. Cur­rently, the coun­try only has 1.34 gi­gawatts of pumped hy­dro stor­age, ac­cord­ing to the Aus­tralian Re­new­able En­ergy Agency.

Beyond Snowy, Ori­gin En­ergy has pro­posed to dou­ble its pumped hy­dro stor­age power at Shoal­haven in NSW, tak­ing the to­tal gen­er­a­tion ca­pac­ity to about 500 megawatts. In Queens­land, Genex Power has de­vel­op­ment ap­proval to start build­ing 250 megawatts of pumped hy­dro at its Kid­ston project. Hy­dro Tas­ma­nia, the largest gen­er­a­tor of re­new­able en­ergy in Aus­tralia, has iden­ti­fied 14 sites it could use in its “Bat­tery of the Na­tion” project and says it could start build­ing as soon as 2020.

At a re­cent Com­mit­tee for Eco­nomic De­vel­op­ment of Aus­tralia event in Mel­bourne, Hy­dro Tas­ma­nia’s chief ex­ec­u­tive, Stephen Davy, said the Tas­ma­nian projects ranged be­tween

$1.1 mil­lion per megawatt installed and $1.5 mil­lion per megawatt installed, with “any­thing from seven to 20 hours’ worth of stor­age” be­hind them.

“What we’ve iden­ti­fied in Tas­ma­nia through the Bat­tery of the Na­tion work is pumped hy­dro is at the mo­ment – and will be for quite a long time – the most cost-com­pet­i­tive grid-based stor­age,” Davy said.

Bruce Moun­tain says there is ev­i­dence Snowy 2.0 won’t be worth the cost of build­ing it. He points to the Di­nor­wig pumped hy­dro plant in Wales, which last year re­ceived a val­u­a­tion of about $250 mil­lion. Snowy 2.0’s own fea­si­bil­ity study says it has “a mul­ti­tude of sim­i­lar­i­ties” to Di­nor­wig.

“Snowy are say­ing, ‘We must have our project’ with­out any rea­son­able abil­ity to fore­cast those tech­nol­ogy changes over the at least decade it will take for them to build their project,” Moun­tain says. “We are in­vest­ing an un­known sum into a tech­nol­ogy which is – on what we can ob­serve from coun­tries that are mak­ing the tran­si­tion to wind and so­lar very much more quickly than we are – not ter­ri­bly valu­able at all, not worth any­thing near its cost.”

Both pro­po­nents and crit­ics agree the de­lay be­tween for­mer prime min­is­ter Turn­bull’s an­nounce­ment in March 2017 and the fi­nal in­vest­ment de­ci­sion – re­leased by Snowy Hy­dro’s board on Wed­nes­day – has de­terred other con­struc­tion of pumped hy­dro.

The com­pany has said ap­provals and de­tailed plans could be com­pleted in 2019, with full con­struc­tion fore­cast to be fin­ished about seven years af­ter the fi­nal call is made.

“While it’s hang­ing there it hugely in­hibits other peo­ple want­ing to con­struct pumped hy­dro. If it’s com­mit­ted, other peo­ple will say, ‘Okay, we’re pretty much right un­til 2024, I will com­mit my pumped hy­dro to start in 2025, or 2026,’” Blak­ers said.

Moun­tain, on the other hand, says it is not plau­si­ble that the project will be fin­ished that quickly, and while be­ing de­vel­oped it’s likely to cre­ate a great deal of un­cer­tainty, scar­ing off other po­ten­tial in­vestors. “There couldn’t be a clearer ex­am­ple of how not to do a ma­jor project.”

Po­lit­i­cally, Snowy 2.0 is pop­u­lar. As the Coali­tion ramps up its in­ter­ven­tions in the en­ergy mar­ket, a mas­sive bat­tery in the Snowy Moun­tains that can pro­vide cer­tainty when the wind isn’t blow­ing and the sun isn’t shin­ing doesn’t seem so out of place.

La­bor, too, seems favourable – shadow en­ergy min­is­ter Mark But­ler has had the same line since Turn­bull an­nounced the plan, that only La­bor’s poli­cies would re­sult in enough re­new­ables to make 2.0 a worth­while in­vest­ment.

So where to next for Snowy 2.0? Al­though its board has made the de­ci­sion to push ahead with the project, as was widely ex­pected, there are still some reg­u­la­tory hoops to jump through.

The project was de­clared “crit­i­cal state sig­nif­i­cant in­fra­struc­ture” by NSW in March, and that set out a plan­ning ap­proval path­way, be­gin­ning with en­vi­ron­men­tal im­pact state­ments for each phase. NSW Plan­ning Min­is­ter An­thony Roberts now needs to give ap­proval be­fore ex­plo­ration work can be­gin.

Con­struc­tion could start as early as 2020 and, on Snowy Hy­dro’s tim­ings, start gen­er­at­ing power by 2024. From there, the com­pany al­ready an­tic­i­pates it will have the need, and the busi­ness case, to ex­pand fur­ther – by up to as much as 8GW of ca­pac­ity.

Be­fore all that, the fed­eral gov­ern­ment has to de­cide whether the plan does stack up. Mal­colm Turn­bull may have lost the prime min­is­ter­ship over his en­ergy pol­icy, but he may yet gain a legacy as the PM who spurred the cre­ation of a multi­bil­lion-dol­lar bat­tery.

Then prime min­is­ter Mal­colm Turn­bull vis­it­ing the Snowy Moun­tains Hy­dro-elec­tric Scheme in Tal­bingo, NSW, last year.

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